Robinhood as the Amazon Prime of finance, with Sam Andrew

Transcript

The cadence at which Robin Hood develops and gets into market new products is absolutely best-in-class. Every year they're launching a handful plus of products. Some of which really hit, others less so, but that's fine. The point is is they're always like on the bleeding edge of innovation. And that innovation is what led to now a dozen plus business lines of 100 plus million revenue. The Robin Hood chain is live and the race to build the super app of finance is on. But can Robin Hood win?

What is their strategy? Who are their competitors? And what do you need to know about all of this? Hello and welcome to the Milk Road Show, the podcast that knows that the real financial super apps were the old Bitcoin faucets that used to just distribute free Bitcoin to anyone who wanted them. Yes, it's a real thing. Look it up. I'm your host, John Gillan. Today is Tuesday, July 7th, and today we are joined by Samuel Andrew. Sam is a crypto and markets analyst at North Island Ventures where he focuses on equity research and investments in digital assets and related technologies. Previously a hedge fund analyst at Blue Mountain Capital. Sam is going to break down a ton of alpha today and give us the latest on Robin Hood. So, if that all sounds good to you, make sure you like and subscribe. Share this episode

with somebody who's going to enjoy it. Before we jump in, if you want to see exactly what our analysts at Milk Road Pro are buying, selling, and researching, you can get all that info in real time if you join Milkroad Pro. 33% off this week only. Check out the link in the description for more on that. Today's episode is brought to you by BitGet Stocks 2.0 with real liquidity, real dividends, and securitize the regulated rails for tokenization. Without further ado, welcome back to the Milk Road Show. Sam, how are you, sir? >> Hey, John. I'm doing great. Thanks for having me back. >> I'm excited to talk to you. I think a lot of people are focused on Robin Hood right now with the recent announcements from them. I I wanted to start with a report that you published. You co-authored this with Artemis on Robin

Hood. It's called why Robin Hood is positioned to be the winner of retail finance. And I'd love if you could start us out with a highle outlook on this report and and just give us the thesis on Robin Hood here. >> Sure, John. I'll do that uh quickly. I need to read you just a two sentence disclaimer which will be very evident that I'm reading it and then we can get right into it. So, North Island Ventures is a registered investment advisor. Anything I say on this podcast is forformational purposes only. It's not investment advice or solicitation. Accounts advised by North Island Ventures hold positions in Robin Hood and we may trade in Robin Hood stock at any time. And obviously investment investing involves its own risks and everyone should be doing their own

research. Um, okay. Now we got that out of the way. The Robin Hood thesis. >> All right. I just want to say anybody who has to read their own disclaimer, you know, is legit. So this is already a good sign. I'm already bullish on this conversation. So yeah, please continue. Robin Hood. [laughter] >> Okay, I'll I'll walk us through very high level the thesis and then there's probably different attributes of that we can talk in a little bit more detail. So simplistically, Robin Hood is developing a financial super app designed for all your financial needs and with that comes a much higher monetization per user and we can talk through the kind of drastically different monetization from Robin Hood and his competitors. The

second thing that's happening with Robin Hood that's part of the thesis is that it's evolving from this highly cyclical tradingoriented business to a secular growth story. And that secular growth comes from the a whole bunch of different product launches that Robin Hood has had as well as what's estimated to be an $80 trillion general wealth transfer from boomers to younger generations. And with that, you know, transition, Robin Hood evolves into a much higher quality business. And then kind of kind of tactically right now, the third thing to point to is that

there's a sequence of things happening in the second half of this year and actually have started to play out already that should drive a lot more engagement towards Robin Hood, particularly prediction markets. They've launched their kind of vertically integrated prediction markets. We also have a really strong calendar for prediction markets. We got the World Cup happening right now. We got the midterms coming up. Then we'll get a full NFL season. And then you also have these like mega IPOs, right? SpaceX just happened. Anthropic uh is likely on the way. And those things are events uh that catalyze more customer engagement that should help um really accelerate growth for Robin Hood in the second half this year and maybe into next year. One thing

we've all learned over the years is that investing is easier when you're not doing it alone. Our analysts have called AI stock winners like Micron, Nebius, and Bloom Energy early, as well as crypto winners like Hyperlquid and Lighter. But honestly, that's only half the value. The real benefit is seeing every investment as it happens, understanding the thesis and research behind it, and having a team of five analysts researching the markets every single day. Milk Road Pro is 33% off this week only. Check it out at the link below. Okay, so there's a couple of pieces of this that I want to unpack a little bit more. Um but the first one is this idea of prediction markets and in this report you said that this is an emerging asset class and I thought that was an interesting framing of prediction markets. Most people I don't think

really think of them in that way. Could you walk us through why you think this deserves to be treated as its own asset class and and how you see prediction markets sort of evolving here? >> Yeah. So, it's a new it's a new asset class in the sense that it's a new way for people to invest, to speculate, to effectively express an opinion on a certain outcome, right? In a way, in a medium that wasn't available before. That's all we mean by like it's a it's a new asset class. And what we've seen is a tremendous growth in uh prediction market volumes from like a few billion dollars, you know, earlier this year in daily traded volumes to now off the back of World Cup pushing like 15 maybe 20 billion uh of daily volume.

Like it's enormous the type of growth that we've seen. Now a lot of that is sports driven. um and that sports is proving to be kind of like the testing ground of how a whole bunch of these markets could work. Uh we suspect that in time that'll grow beyond sports to all sorts of different um fields. And I think to take a step back, what's really important to understand for Robin Hood is we think Robin Hood is probably in a position to win in prediction markets. And prediction markets is probably a winner take all to winner takemost market because liquidity is so important in these different pools in these different markets, right? Markets being a bet on a certain outcome, whatever

that may be, politics, weather, financial data, sports, what have you. You want liquidity in that specific market because with liquidity, you can put on more trades and price discovery happens where there's the most liquidity. And so why we think Robin Hood may be in position to win in prediction markets is I think there's two critical things to win in prediction markets. One is distribution and second is the user experience. So one for distribution Robin Hood has about 28 million funded accounts on its platform. That's significantly bigger than the other prediction markets that don't

necessarily disclose their figures, but we estimate are in the like mid to high singledigit um millions. Um the second thing is user experience. Robin Hood is known and you've probably used the app. I'm a regular user of the app. Has the best user interface and ability to develop financial kind of innovation in an app-based mobile first product. Not only that, but if you go to the Robin Hood app, then you'll be able to engage in prediction markets in a way that you can't on any other platform. I can give you an example of that. Say you want to interested in something related to Tesla. Robin Hood in time could probably serve you up like well you

could buy Tesla shares, you could buy Tesla options or you could buy prediction markets related to this particular quarter on like what the revenue number is going to be or how many Model Y's um they sell. Right? There's a few regulatory things that need to happen in order for that to come to fruition, but it gives you a flavor of the type of user experience that can be facilitated in Robin Hood that quite frankly, I don't think the other prediction markets can offer that holistic experience. >> Okay. So, how big do you think this prediction markets market, this asset class is likely to get? Because just like you said, we've seen really huge growth from it in the last year, actually the last two years really. But

I think it's hard for a lot of analysts to get a handle on how big this is going to get, how sustainable this is. What are your thoughts on that in terms of the the long-term value or size of this asset class? >> Yeah. Um, listen, there's things that we try and forecast and predict and other things that we realize are very difficult to forecast and predict. The size of prediction markets is one of them. And I think what's compelling about Robin Hood from a thesis standpoint, prediction markets is one of several avenues that Robin Hood has for the business and the stock and so forth for the investment to win. If they win in prediction markets, great, even better. If they don't, then there's a few there's, you know, they now have

like a dozen plus business lines that generate 100 million of revenue. So, it's helpful, but it's not, you know, if Robin Hood doesn't win in prediction markets, by no stretch is it game over. So, back to your question of like how big it could be, like I don't really know. My suspicion is significantly bigger than it is today because these products are just starting to get into the market, right? The their new developments particularly in the US. Robin Hood has disclosed that they have about one and a half million of their users have touched prediction markets.

They have 28 million users, right? It's a fraction that have actually just just even traded one of these contracts. What I do think will happen though is the growth will happen, but it'll be volatile along the way because of the nature of prediction markets. certain events draw a lot of attention such as the World Cup right now, elections, things like that draw a lot of attention, volume spike and then come off. What I can also tell you is earlier this year into the end, you know, during NFL playoffs and then culminating in the Super Bowl, you'd usually expect that to be kind of a local peak in prediction market volumes and it turned out to not be the case. If we look across Poly Market, policy that and Robin Hood kind

of all the the big players in that space like volumes continue to grow even after um the the Super Bowl. Um so that gives you an indication that like there's still significantly more growth to to be had exactly how it all pans out like we will see. >> We will see. Sam, you mentioned in your answer that Robin Hood now has, I think it is like 12 or 13 different lines of business that are all generating over hund00 million of revenue. Last week, they had their world is flat event where they announced a lot of uh new things in in the crypto space of perpetual contracts, the Robin Hood chain, several other products. Uh, and I'm curious your like overview of their their business here and how these new products fit into

that. Do you think this is going to drive another $100 million of revenue for Robin Hood or just what are your thoughts around this? >> Are there tokenization business particularly or I I can touch on tokenization then kind of the broader broader product suite. >> Take it however you want. >> Okay. Tokenization is likely helpful in like the next few years. It's not really a needle driver right now. And the reason tokenization is helpful for them is that enables them to penetrate international markets a little bit faster, most likely a little bit faster.

Um, and right now Robin Hood is pretty much entirely the US business. Um, so the idea they can go kind of carry their brand, their knowhow and so forth in different European European and kind of South Asian markets and doing that in a tokenized format should be easier at least to to first penetrate. Thereafter, tokenization could become a bigger deal because it it does streamline the transfer of assets. So that should lower the cost base of uh of Robin's business model, Robin Hood's Robin Hood's business model. We will see that's a few years out. The more important picture, broader picture is Robin Hood's product development. The cadence at which Robin

Hood develops and gets into market new products is absolutely best-in-class. Like they are, you know, every every year they're launching a handful plus of products. Some of which really hit, others less so, but that's fine. The point is is they're always like on the bleeding edge of innovation. And that innovation is what led to this now dozen plus business lines of 100 plus million in revenue. And what's so important about all those different product lines and the different products that Robin Hood has addresses this like why now question. and the why now in so far as this 80 trillion generational wealth

transfer that we expect from boomers to younger generations 6 months ago certainly 12 18 months ago Robin Hood was not in position to absorb those assets right because they didn't have retirement products they didn't really have savings products it was really just like a place where you could go trade speculative assets and that's what I mean by Robin Hood's going through this transition from a cyclical business to a secular growth driver because it finally has the full product suite across retirement, savings.

They've launched banking products now spending with their credit card and investing and yes, also speculation, whether that be prediction markets, options, so forth, but a wide swath of products that really caters to anyone's financial needs. And that wide swath of products is what enables them to absorb this large capital base that is likely coming their way. And to put that kind of in numbers, Robin Hood users right now have about $12,000 give or take per account. The larger brokers that cater to an older demographic have anywhere between like $150,000 to like over $300,000 per account. So there's an enormous difference there in

how much capital people have on these more established brokers versus Robin Hood. And we believe that over time that will converge. But the first step in doing that was Robin Hood developing all these products which they've now done. >> Real world assets like funds, treasuries, and private credit are still running on rails built decades ago. Gated, paperwork heavy, slow to settle. Everyone's talking about tokenizing them, but far fewer can actually do it and do it without cutting regulatory corners. Securitize can. It's the SEC regulated infrastructure bringing real world assets on chain. Nine years in, native tokenization not wrapped, backed by Black Rockck, Morgan Stanley, and Kathy Woods Arch Invest, and chosen by the New York Stock Exchange, VanbNy, and Apollo to do it at scale. It's the

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>> Gotcha. Okay, that makes a lot of sense there. I want to bring up another thing which I I've seen you comment on which I thought was a really interesting insight. You said um that Robin Hood Gold, which is the subscription service on on Robin Hood, is becoming the new Amazon Prime and that was a big way Amazon grew their business. Uh this recurring subscription service for Robin Hood. Why is this such a powerful business driver for them? And and what about this is is is standing out to you is is a real big value driver for the company? >> It's a real big value driver and I think it's something that is broadly misunderstood there. You know, we talked about roughly $12,000 per account across all of Robin Hood's account, but the gold subscribers are the power users.

They probably have five times the amount of assets on Robin Hood as other uh other accounts. And the reason that's so important is because how Robin Hood makes money is capital on their platform. the more capital they have on their platform, the more of these different product lines they can, you know, sell to that capital holder. And the analog to Amazon Prime, I think, is a really good one because, as we probably all know now, Amazon Prime was the key wedge to get customer Amazon customers to engage with Amazon on a regular basis and develop new purchasing habits. I think something similar could

happen with gold. And the idea behind gold is you practically give away, it's $50 a year a product to customers that you know we estimate could be worth like 800 or so dollars worth of like value you get across a whole bunch of like discounted products you get from Robin Hood. And then you once you have access to all these different products, you start depositing a lot more capital on Robin Hood. And it's great unit economics for Robin Hood. This is we estimate probably like a 3month payback and gold subs have been growing pretty consistently. They're roughly 16% of total subscribers for Robin Hood today whereas Amazon like Amazon Prime

estimates are like 80% of like the real power users on Amazon are Amazon Prime. And so what that really means is as you get more gold subs, you get a lot more capital on Robin Hood. And then as you have more capital on Robin Hood, you can monetize that capital at a much higher rate. And to give you a simple example of that, like right now, what's you know, the monetization rate, which people refer to as average revenue per user, is about $160 on Robin Hood. their competitors monetize somewhere between like $600 and $1,400 per user. So that also gives you an idea of the magnitude of the increase

in monetization that Robin Hood can get to. And we think that gold sub like Amazon Prime is a real wedge in how Robin Hood is going to get there. >> I'm curious your thoughts on this financial super app thesis that Robin Hood seems to be going after here. There are a lot of other competitors that might be trying to play for that market share. Coinbase is one that comes to mind. And I'm just curious, you have any thoughts on some similarities, differences between these companies, their business models, and who do you think is the front runner to be the financial super app? And why? Like why does do you think Robin Hood has a lead over a Coinbase for example?

>> So I I do think Robin Hood has a lead over Coinbase and we can kind of substantiate that a few different ways. One is the the number of users, the 27ish million users. Robin Hood doesn't really sorry, Coinbase doesn't really disclose the number of users it has anymore. The product breadth as well. Robin Hood has a much wider product breath than Coinbase has. Um, also with that product breath is much higher pace of innovation at Robin Hood.

And then taking a step back, they are both trying to get at the same thing of like this financial super app, but they are coming at it from two different avenues. Coinbase is coming at it from like a crypto first um perspective. Their users are primarily crypton natives that most their capital is in crypto assets. that in my opinion is a fairly narrow avenue whereas Robin Hood is coming at it from a much wider avenue. Its customers have equities, they have options, they have crypto assets, they have prediction markets positions, they

have a much wider swath of assets plus they also have retirement accounts. So that much wider avenue enables Robin Hood to capture much more capital and I think ultimately it enables Robin Hood to have a larger what's called share of wallet of all your capital you may have much you going to put at Robin Hood probably a lot more because of all these different products it has whereas with Coinbase the share of wallet is likely going to be smaller because what people know Coinbase for is crypto and so you may keep your crypto assets the problem with Coinbase but you may you actually historically have had to have all your assets somewhere else. That's not the case with Robin Hood. You can have all your assets there across all these

different asset types. >> Sam, you said something interesting uh in this conversation I want to come back to. You said that you believe that tokenization for Robin Hood isn't an immediate needle driver, but it might help them penetrating some of these other markets outside of the United States. Could you explain a little bit more about what you meant by that and how tokenization might help Robin Hood sort of expand their their market share? Yeah, right now it's primarily used as a marketing thing whereby like they've tokenized certain assets of like stocks, private companies, things like that that they're using as a kind of marketing tool in Europe to get customers on their platform. That that's how it's helping them get it get into those markets. It's not like it's a helpful like marketing

angle, but right now it's not a needle driver. >> What do you think will be the needle driver? like you you said that like they're they're going to have a bigger share than Coinbase of your overall wallet and there's a lot of other products on there on on the Robin Hood platform that that draw a lot of users. Um what do you think is going to be the thing that drives the needle in terms of getting more adoption for Robin Hood outside of the US? Yeah, like entering new markets will be helpful, but the most important thing for Robin Hood and they can do this, you know, their growth, the majority of their growth for the next while will be in the US. So the most important thing for Robin Hood is growing assets on platform and their like northstar is the

net deposit growth kind of every month every quarter and that's you know that's a barometer for how much incremental capital existing and new customers are depositing on its platform [snorts] that is the most important thing for Robin Hood and I know it they know it they talk about it and it's our view that you know how you grow net deposits. It's product innovation. Just having like the best product suite helps people deposit more assets. That's why I was saying like historically they haven't even had the product suite to get net deposits. And then gold subs as well of having this like very valuable subscription model that you give access

kind of preferential access or like uh discounted access to products based on the subscription and then even more capital starts flowing away. Those are the most important things for Robin Hood and with more capital enables you to monetize enables Robin Hood to monetize that capital at a higher rate. >> Last week at the the the world is flat event uh the Robin Hood crypto event they announced an earn product that offers 7% yield and that has already apparently been driving a lot of of capital coming onto the Robin Hood platform. As you said, that's a big needle driver for them. How important is that product in your mind in terms of this thesis and in terms of attracting more capital to Robin Hood?

>> It's it's fairly important, but I just want to separate kind of two things. What has historically been a very helpful product for Robin Hood is their like cash earn product that you deposit your cash and it now generates like threeish a bit more percent than that. And that was if you're a gold sub, you get kind of full access to that. So effectively you go instead of having your cash sitting in a checkings account in your bank or even a money market fund like Robin Hood automatically takes care of that and earns depending on where treasury rates are like 3 plus%.

Historically it was even higher than that and so that was a big driver to get people to deposit their cash on Robin Hood. What they announced last week is something slightly different that will help and it has a much higher yield. that has a 7ish% yield, but that's particularly like stable coins that need to be deposited into Morpho and then kind of lent out thereafter. So, it gets a higher rate. There's higher risk uh associated with that because you're effectively then lending out that capital. This is one of those things where like it's helpful at the margin, but I don't think the product that was announced last week is like that much of a needle driver. Maybe in the future it will be. It's an again an example of

like Robin Hood laying the groundwork for a whole bunch of different products and seeing which ones will really grow and those are the ones they'll cultivate. >> I'm interested your thoughts on another competitor who's in this landscape that I think a lot of people overlook, but Meta has been talking recently about launching prediction markets in the past. They have explored their own form of a stable coin. And it seems like, you know, if the Clarity Act passes, we might be in a world where Meta and their 3 billion very loyal users are suddenly presented with a host of new products that might compete in this super app landscape. How do you think about that as a risk for Robin Hood's business and and you know, I mean, obviously it's kind of like a like a thing on the horizon that may or may not happen, but

is that something you think about or what do you see happening there? I'm yes it is a risk on on the horizon like meta doing anything in like the world of fintech is a risk and not to be taken lightly. It's not my like biggest risk right now and it goes back to what I was saying around how I think you win in prediction markets. It's distribution and the product experience. Now Rob or Meta has arguably the best distribution in the world. So they win on distribution, but on like product experience, it's like, well, are you going to be trading product, you know, prediction markets in your Instagram feed or in your like, you know, your Facebook feed that I'm less certain

about. And then another point on the product experience. You know the Tesla example I was giving earlier where in Robin Hood you could conceivably trade or invest across a whole bunch of different Tesla exposures from equity options prediction markets. Like Meta can't do that, right? So that's why I still kind of lean towards like I see Robin Hood winning this out. Um because they're in a position where their product experience like no other competitor can compete with them from a product experience standpoint at least right now.

>> Okay. So their big advantage is the the first mover advantage, the the capital liquidity they've got, but then the speed and effectiveness of their product innovation has been just strongly better than most other players in the market and that's given them a bit of a moat. Just their product is really great, right? That's that's kind of the thesis there. >> Yeah, they can combine the all these different products together that makes them like the best product in class. And then for prediction markets in particular, as the market continues to grow and they should get more liquidity in these different markets, then you know that further enshrines their mode in prediction markets. They're not there yet, but I suspect that could be where it goes.

>> Okay. We we talked a little bit about Meta in Coinbase and you said like, you know, gave some thoughts on why you think Robin Hood has some advantages there. Is there anything that could invalidate this thesis on Robin Hood for you? Is there is there something you're watching for? um that that might make you flip bearish on them or just like what what scenario might come up where you could see yourself maybe, you know, taking a different view on this situation and and getting bearish on Robin Hood. >> Yeah. If their net deposits start slowing, the net deposits or gold stuff start slowing, that's like that's an invalidation of the thesis. Uh and that would make get me to change my mind.

There's a few other things on the horizon, but those are the things we're like laser focused on. >> Okay, cool. Uh Sam, I think we covered a lot on Robin Hood here. I really appreciate you coming on the Milk Road Show to share these things. I I think you write a lot of of great content and research on digital assets and and businesses in this space in general. Um what are you working on next or what what what is uh something on the horizon that you're looking at you're researching right now? What's got your attention at the moment? >> Sure. So maybe I can you know spill you in a little bit more on North Island Ventures and I'll kind of set the the landscape a little bit. So, North Island Ventures, we're a a technology fund based in New York. We have about half a

billion dollars in assets and we invest both at the venture stage, C stage in particular, and in kind of in the through a hedge fund. Um, so two separate funds all thesis driven kind of at the intersection of blockchain, crypto, fintech, and increasingly AI. And those three avenues are the things we spend kind of all our time on. From Agentic Finance, we recently published uh I think a pretty helpful presentation on our views on Agentic Finance. We spend a lot of time on understanding the entire AI supply chain from how power is generated to how tokens are used when you're using open open AI or anthropic products. And then kind of our bread and

butter historically has been everything kind of digital assets, crypto. We've been very deep in DeFi for many years now. So, we've got kind of a a fairly wide aperture of of things to look at that that keep us very engaged and uh there's never a shortage of ways to uh to peique our curiosity. >> Well, Sam, I think you've always piqued my curiosity with your research. I think your audience really appreciates you coming on and sharing your insights as well. Where can we send people to find more of you and your work online? Where's the best best place to find you?

>> Sure. X is probably the best. Um, it's uh Samuel M. Andrew. You can find me on on X and um, yeah, let me know your thoughts. I'd be be curious to engage. >> Yeah. Well, everybody go tell Sam your thoughts. I'm sure he'd be appreciative of that. Uh, Sam, thanks so much for being on the Milk Road Show. I hope we can catch up again soon. >> You bet. Thanks, John. >> Thank you all for joining us. I hope you all learned something today. Until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of the Milk Road Show. Thanks for being here everyone. Bye.

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